Class Action Settlement: Are you protected from future claims in overlapping class actions?
Like most corporate commercial litigation, class actions are settled more often than not. Court-approved settlements bind every class member who has not opted out of the proceeding. So what happens when, following settlement, a class member purports to bring a new action concerning the subject matter of the class proceeding? Is the defendant able to quickly and easily put an end to the new action?
Maybe. The Saskatchewan Court of Appeal dealt with those issues in Nelson v Teva Canada Limited, 2021 SKCA 171. The decision serves as a cautionary tale for defendants who believe they are protected by a class action settlement agreement and highlights the importance of release language when there are existing or potential overlapping class actions.
In 2011, a class proceeding concerning the drug “Mirapex” was certified in Ontario: Schick v. Boehringer Ingelheim (Canada) Ltd., 2011 ONSC 1942. The class in Schick was all persons resident in Canada (excluding Quebec) who were prescribed and ingested “Mirapex (generic name: Pramipexole dihydrochloride)” (¶30). The representative plaintiff alleged that Mirapex caused compulsive behaviour, such as gambling, eating, and shopping, and that the defendant originator manufacturer was liable. In 2015, Schick settled. Key settlement terms included
- a release of claims against the named defendant—the originator manufacturer; and
- a prohibition from “instituting, continuing, maintaining or asserting, either directly or indirectly, whether in Canada or elsewhere, on their own behalf or on behalf of any class or any other person, any action, suit, cause of action, claim or demand against any Releasee or any other person, corporation or legal entity who may claim contribution or indemnity, or other claims of relief over from any Releasee in respect of any matter related to the Released Claims.”
However, the release and bar order did not specifically name generic producers and distributors of the drug as beneficiaries of the settlement.
Meanwhile in 2014, a new proposed class action concerning Mirapex was commenced by Jo-Anne Nelson and Randall Ulrich in Saskatchewan. Nelson initially named the originator manufacturer as a defendant, but the suit against the originator manufacturer was discontinued, leaving only the drug’s generic producers and distributors as defendants.
The Decision Below
The generic producers and distributors in Nelson brought a motion to strike the action because the two named representative plaintiffs were class members in Schick and therefore their claims were barred by the settlement and release. In a detailed decision tracing the history of conflict of laws as well as jurisdictional considerations as they pertain to national class actions, the chambers justice agreed, and struck the Nelson action as contrary to the terms of the settlement in Schick, a collateral attack on the settlement order, and an abuse of process: Nelson v Teva Canada Limited, 2020 SKQB 159.
In reversing the decision to strike the Nelson action, the Court of Appeal focused more narrowly on the test to strike a claim as an abuse of process. The court referred to the well-known test to strike a claim, namely, that it is “plain and obvious” that the claim is an abuse of process (¶16). Here, the Court found it was not plain and obvious that the Schick settlement released the plaintiffs’ claims against the generic manufacturers and producers. Rather, there was some chance that the plaintiffs could overcome the settlement and release in Schick, because it could be interpreted as applying only to the originator manufacturer. As it was an “arguable issue” whether the Schick settlement barred the claims in Nelson, the appeal was allowed (¶18).
Overlapping national class actions in different provinces continue to pose a challenge for Canadian courts. Until a uniform national framework is developed, it is difficult for defendants to know whether settlement in one province will protect them in another. The Schick settlement barred class members from commencing or continuing claims against anyone who could claim against the originator manufacturer. Nevertheless, Nelson survived an application to strike.
For Defendants facing multiple national class actions, or even a single class action in one province that purports to be nationally binding, there are two main takeaways:
- Settle with caution: Defendants should be cautious settling class actions piecemeal (e. where there are overlapping classes in different jurisdictions). Settlement agreements and orders must have clear language to provide the maximum possibility for protection against any future overlapping class proceedings. If there are known parties that should be released from claims (such as generic manufacturers), name them.
- If the worst happens, choose the right procedure to deal with it quickly and efficiently: If a fresh class proceeding is brought in the face of settlement of a previous class proceeding, defendants should carefully consider which procedure to use to obtain relief. An application to strike requires the defendant to meet a “plain and obvious” test, while an application for summary judgment or summary trial allows the court to resolve the dispute on a summary basis where there is no genuine issue requiring a trial. In Nelson, the application to strike was dismissed because there was an “arguable issue”. However, if the defendants had applied instead for summary judgment, the court might have determined the issue.